Evaluated need of funds by newly incorporated startups, the Ministry of Commerce once said in a statement that “Even funds are available to exist entrepreneurs from angel investors and venture capitalists when proofs of their business concept are made available, also banks grant loans to entrepreneurs based on their existing asset profile. Hence, only newly incorporated startups find it difficult to raise funds in the market.”
Prime Minister Shri Narendra Modi announced the Startup India Seed Fund Scheme marking the fifth anniversary of the Startup India Initiative. As per PM remarks, the scheme would help incubators to raise funding from the government by just providing proof of their concept, product trials, business prototype, market entry plans, and commercialization options. The Indian government has now approved the proposal for providing easy early-stage funding to the Startup groups.
Issuing guidelines for eligibility of Startup applications in the Startup India Fund Scheme (SISFs), the Ministry of Commerce provided:
Scheme Eligibility for Startups
Only Startups incubated across India shall become eligible for the scheme. Also, they have to qualify the below criteria –
- a) The age of the startup should be at least 2 years and must have been recognized by Department for Promotion of Industry and Internal Trade (DPIIT) as an approved startup.
- b) There must be a core product or service developed by the startup which should have a scope of commercialization, should be market fit, and has a scope of scaling.
- c) Recognized startups should not have received more than Rs 10 lakh of monetary support under any scheme of Central or State Government. This shall do not include any receipt from competition prizes, grand challenges, subsidized working spaces, access to labs, founder monthly allowances, or any prototyping facilities.
- d) Preference in the scheme would be given to startups engaged in developing solutions for sectors of social impact, waste management, education, agriculture, food processing, financial inclusion, biotechnology, healthcare, mobility, energy, railways, oil, gas, textiles, etc.
- e) Only startups with shareholdings of Indian promotes with above 51% would be considered eligible for the scheme, as per Companies Act, 2013 and SEBI Regulations.
- f) No startup would receive seed support more than once in the scheme.
Scheme Eligibility for Incubators
- a) The incubator of the Startup as per the Scheme must be a legal entity registered under
- The Societies Act 1860 or ;
- The Indian Trusts Act, 1882 or ;
- The Companies Act 1956 of Companies Act, 2013 as a private limited company or ;
- Any other legislature as a statutory body.
- b) The incubator should be operational for at least 2 years on the date of application of the scheme.
- c) The incubator must have facilities to seat at least 25 individuals and must have 5 startups undergoing incubation physically on the date of application.
- d) The incubator must have hired a CEO (Chief Executive Officer experienced in raising entrepreneurship, testing or validating ideas, and inculcating finance, legal, or other human resource functions as well.
- e) The incubator must have been assisted by the Central or State Government. In case not assisted by any government body it should:
- It should be operational for at least 3 years ;
- It should have at least 10 startups under incubation physically on the date of application
- It should have furnished an audited annual report for the last 2 years.
- f) If any further checks are required for the incubators, it shall be undertaken by an Experts Advisory Committee (EAC).
Role of Experts Advisory Committee (EAC)
The overall scheme implementation would be undertaken by an Experts Advisory Committee (EAC). The committee shall be chaired by a chairman, team of financial advisors, joint secretaries / additional secretaries, representatives from different departments including biotechnology, science, and technology, Ministry of Electronics & IT research, agriculture and NITI Aayog, and at least three members nominated by these experts above from different domains of government.
Assistance under Scheme to Incubators
Based on evaluation of the EAC, the incubator shall be granted assistance for up to
Rs 5 crore in specified installments within 3 years. Such assistance shall only have to be used for eligible startups and not for any facility creation or other expenses.
The incubator along with the scheme aid shall also be granted a management fee at the rate of 5% in addition to the aid, which means if Rs 1 crore is granted the total amount to the incubator shall be granted including the management fee i.e Rs 1.050 crore. Such a fee can be used for any administrative expenses, selection, and due diligence of startups or monitoring the progress of startups. While such a fee cannot be used for any facility creation or other expenses.
The quantum of the installment shall be decided and issued by EAC, only based on the timely submission of reports and evaluations done by the EAC members. The first installment shall be issued for up to 40% after which if the incubator is left with less than 10% of the amount, an additional amount can be raised from EAC after submission of the report of milestones set by EAC.
If the incubator fails to utilize at least 50% of the total funds issued by EAC within 2 years, the incubator shall have to return the remaining funds along with interest and no further funds shall be allowed to such incubator.
The incubator shall be responsible for ensuring all required aid to startups for developing their infrastructure and no fee to be charged during the process of selection by the incubator from the startup.
Incubators to apply to the scheme funding can avail the opportunity by following the registration process provided at https://startupindia.gov.in.
Essential guidelines for Startups
Startups those eligible shall have to be selected by the Incubator Seed Management Committee (ISMC) constituted by the Incubator under the scheme.
The incubator shall execute a legal agreement with the funded startups before the release of the first installment and all funds issued shall have to be made in the company accounts of the startups.
A grievance portal or cell shall also be designed by DPIIT for monitoring the progress of the scheme and the incubator shall be responsible for maintaining the necessary records and account books.
Know more on availing seed funding through Startup India Seed fund Scheme; contact our startup compliance expert at info@taxreturnwala.com